Euro plunges on negative interest threat

Mario Draghi, European Central Bank president, says interest rates may have to be cut

LAST UPDATED AT 10:18 ON Fri 7 Dec 2012

Mario Draghi, president of the European Central Bank, says that interest rates may have to be cut to less than zero in response to the eurozone crisis - effectively paying institutions to borrow. The Daily Telegraph said his comment sent the euro into a nosedive, dropping from $1.3075 to $1.2950 in just two hours. "A negative deposit rate is the mother of all sell signals for a currency," said Hans Redeker, currency chief at Morgan Stanley. The ECB has so far held interests at 0.75 per cent even though economies in the eurozone are expected to shrink by 0.3 per cent next year. The ECB lends money to central banks in Euorpe, a vital part of supporting troubled economies in Europe.

For further concise, balanced comment and analysis on the week's news, try The Week magazine. Subscribe today and get 6 issues completely free.

Read next

Jose Manuel Barroso
Tobin tax moves closer